NC Court of Appeals Finds $100 Adequate Consideration to Support Non-Compete
- October 12, 2015
In North Carolina, an initial offer of employment serves as adequate legal consideration to support non-competition and non-solicitation restrictive covenants. However, once a person is already employed, the employer must pay additional consideration beyond continuing employment in order to support these restrictions. For many employers, the question remains how much must they pay in order to obtain a legally enforceable agreement.
Last week, the North Carolina Court of Appeals concluded that it will not consider the amount of consideration provided or pressure brought upon the employee to sign the agreement when determining its validity. As long as the consideration is real, the amount paid does not serve as the basis for a legal challenge to the enforceability of the agreement. In Employment Staffing Group v. Little, the plaintiff had worked for the defendant for 13 years before she was asked to sign a non-compete. The non-compete prohibited her from working for a competitor for one year following the termination of employment, and from soliciting customers for two years. The plaintiff received a direct deposit of $100 in return for signing the agreement. She left work and began competing with the defendant, which sued her for breach of the restrictive covenants.
The plaintiff contended that the $100 paid was illusory because it is not specifically mentioned in the non-compete, and that it is inadequate consideration as a matter of law. The Court of Appeals rejected both arguments, initially concluding that the parole evidence rule allows the parties to introduce evidence of the payment of the $100 consideration regardless of the agreement’s merger clause. Second, the court noted the North Carolina Supreme Court’s 2009 Hejl decision, in which $500 was found to be adequate consideration to support a non-compete agreement. The plaintiff’s contentions that she felt pressured to sign the agreement for fear of losing her job did not give the court the ability to determine the adequacy of the consideration provided.
This decision reiterates North Carolina’s rule that as long as some tangible consideration is paid in conjunction with a mid-employment non-compete, courts will not inquire as to the adequacy of the consideration. Based on this decision, employers could offer a nominal payment while conditioning continuing employment on the employee signing the agreement. This tactic could result in significant employee relations issues, but based on this decision, it will not call the validity of the signed non-compete into question.